Green Cross Health Limited( NZSE:GXH ) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Green Cross Health investors that purchase the stock on or after the 5th of June will not receive the dividend, which will be paid on the 22nd of June.
The company's upcoming dividend is NZ$0.0647058 a share, following on from the last 12 months, when the company distributed a total of NZ$0.06 per share to shareholders. Calculating the last year's worth of payments shows that Green Cross Health has a trailing yield of 4.0% on the current share price of NZ$1.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Green Cross Health is paying out just 3.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 18% of its free cash flow in the last year.
It's positive to see that Green Cross Health's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for Green Cross Health
Click here to see how much of its profit Green Cross Health paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Green Cross Health, with earnings per share up 3.9% on average over the last five years. Green Cross Health is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Green Cross Health has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Should investors buy Green Cross Health for the upcoming dividend? Earnings per share have been growing moderately, and Green Cross Health is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Green Cross Health is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Green Cross Health, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Green Cross Health is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature.
We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice.
It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
